In today’s digital age, the urgency of strengthening cybersecurity has never been greater. The global cybersecurity market is expected to reach $208.8 billion this year, and businesses are investing heavily to combat growing threats. With attacks becoming more frequent and costly, businesses can no longer afford to neglect their protection.
Against this backdrop, investors may want to consider protecting their portfolios by investing in fundamentally strong software security stocks such as Check Point Software Technologies (CHKP), Trend Micro (TMICY), and Fortinet (FTNT).
The importance of cybersecurity was brought home most recently when a software glitch at cybersecurity giant CrowdStrike Holdings, Inc. (CRWD) caused a major technology outage and disabled Windows devices for millions of users. The incident caused a double-digit drop in CRWD’s stock price, but also drew attention to this ubiquitous technology.
Additionally, the growing threat of cybercrime has led governments and businesses to invest billions of dollars in strengthening digital security. For example, the Biden administration has proposed a cybersecurity budget of $13 billion across the private sector and government agencies for fiscal year 2025, up from $11.8 billion allocated in fiscal year 2024 and $11.3 billion in fiscal year 2023.
Additionally, the FY 2025 proposal includes $3 billion for the Cybersecurity and Infrastructure Security Agency, an increase of $103 million over the agency’s current budget.This long-term trend is creating significant revenue opportunities for companies that specialize in internet-enabled protection services and products.
The global cybersecurity market is projected to grow from $193.73 billion in 2024 to $562.72 billion by 2032, exhibiting a CAGR of 14.3% during the forecast period.
Taking these factors into account, let’s evaluate three software-security stocks, starting with our third choice.
Stock #3: Fortinet Inc. (FTNT)
FTNT, with a market capitalization of $43.84 billion, provides cybersecurity and integrated network and security solutions worldwide. The company offers secure network solutions with a focus on network and security integration, network firewall solutions, wireless LAN solutions, and secure connectivity solutions.
On June 10, 2024, FTNT agreed to acquire Lacework, a data-driven cloud security company. By integrating Lacework’s CNAPP solution, the company aims to strengthen its portfolio and create one of the most comprehensive AI-driven cloud security platforms. The acquisition will enable customers to better identify, prioritize, and remediate risks and threats for their complex cloud-native infrastructure, from code to cloud. The move is expected to close in the second half of 2024 and is aligned with FTNT’s growth strategy and innovation efforts.
For the first quarter of 2024 (ended March 31), FTNT’s total revenue increased 7.2% year over year to $1.35 billion, and gross profit increased 9.8% year over year to $1.05 billion. Non-GAAP operating income was $386.1 million, up 15.6% year over year.
The company reported non-GAAP net income of $333.9 million, or $0.43 per share, up 23.8% and 26.5%, respectively, from the same period last year, while operating cash flow increased 22.6% to $830.4 million compared to the same period last year.
Analysts expect FTNT’s second-quarter (ending June 2024) revenue to grow 8.5% year over year to $1.4 billion, and EPS for the quarter to increase 7% year over year to $0.41. Additionally, the company has consistently beaten expectations, beating consensus EPS estimates for the past four quarters.
The stock has risen 2% over the past nine months, closing at $57.39 in the last trading session.
FTNT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a “Strong Buy” in our proprietary rating system. POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
FTNT receives an A grade for Quality, ranking it #8 out of 23 stocks in the Software – Security industry. To access other FTNT ratings for Growth, Value, Momentum, Stability and Sentiment click here.
Stock #2: Trend Micro Inc. (TMICY)
TMICY is headquartered in Tokyo and has a market capitalization of $6.06 billion. The company develops and sells security-related software for computers and related services worldwide. Its platform offerings include the Vision One Platform, Attack Surface Management, Extended Detection and Response, Cloud Security, Network Security, OT/ICS Security, and Threat Intelligence.
On June 12, TMICY unveiled its first consumer security solutions designed to protect against new threats in the AI PC era. These advanced features are expected to be available to consumers in the second half of 2024. Equipped with a Neural Processing Unit (NPU), the AI PC enables local execution of AI applications, providing privacy and performance benefits.
In May, the company announced Inline NDR, a breakthrough advancement in network detection and response (NDR) technology, available through the Trend Vision One platform. Unlike standalone solutions, Inline NDR enhances detection and response across all security functions.
Its unique capabilities include enforcement, visibility and network decryption without compromising quality. Integration with Trend Vision One eliminates the need for customers to deploy multiple disjointed solutions, enabling security teams to operate more efficiently.
TMICY’s sales for the first quarter of its fiscal year ending March 31, 2024 were 65.93 billion yen ($428.67 million), up 12.3% year-on-year. Operating profit increased 27% year-on-year to 12.13 billion yen ($78.84 million).
Additionally, net income attributable to parent company shareholders increased 68.7% year-on-year to 10.75 billion yen ($69.92 million), and net income per share also increased 72% year-on-year to 78.83 yen.
The Street expects TMICY’s third-quarter (ending September 2024) revenue to grow 2.9% year over year to $436.58 million. EPS for the current quarter is expected to settle at $0.50, marking a strong 907.1% growth year over year.
The stock has risen 26.5% over the past nine months, closing the last trading session at $46.51.
It’s no surprise that TMICY has an Overall Rating of B, which equates to a Buy in our POWR Ratings system, as well as grades of B for Value, Stability, and Quality, ranking it 6th out of 23 stocks in its industry.
In addition to the above, we also rated TMICY on Growth, Momentum, and Sentiment. You can see all of TMICY’s ratings here.
#1 Stock: Check Point Software Technologies (CHKP)
Headquartered in Tel Aviv, Israel, CHKP develops, sells and supports a broad range of IT security products and services worldwide. The company offers multi-level security architecture, cloud, network, mobile device, endpoint information and IoT solutions. Its market capitalization is $20.35 billion.
CHKP announced on July 11 that its board of directors has approved a $2 billion expansion of the company’s ongoing share repurchase program. The expanded share repurchase, which is expected to be completed by the fourth quarter of 2024, reflects confidence in the company’s financial strength and aims to enhance shareholder value and investor sentiment.
On June 11, CHKP launched CloudGuard WAF-as-a-Service, an automated, AI-powered web application firewall that provides organizations with a solution to prevent cyber threats and protect web applications from unauthorized access and data breaches. With a focus on prevention, simplicity and scalability, it offers an easy and cost-effective way to efficiently secure cloud applications and APIs.
For the second quarter ended June 30, 2024, CHKP’s total revenue was $627.4 million, up 6.6% year over year, and non-GAAP operating income increased slightly year over year to $265.1 million. The company’s non-GAAP net income and earnings per share increased 3.2% and 8.5%, respectively, year over year to $246.0 million and $2.17.
The consensus revenue estimate for the fiscal third quarter (ending September 2024) is $635.06 million, up 6.5% year over year. The consensus EPS estimate for the current quarter is $2.25, indicating an increase of 8.7% year over year. The company has an impressive track record of delivering earnings surprises, having surpassed consensus EPS estimates in each of the past four quarters.
CHKP shares have risen 40.2% over the past year and 20% year-to-date, closing the last trading session at $183.37.
CHKP’s positive outlook is reflected in its POWR Ratings: The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
Quality has a grade of A and Sentiment is a B. In the same Software – Security industry, CHKP is ranked #3. To see additional ratings for CHKP (Growth, Value, Momentum, Stability), click here.
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FTNT shares were trading at $57.23 per share on Tuesday afternoon, down $0.16, or -0.28%. Year-to-date, FTNT is down -2.22%, while the benchmark S&P 500 index is up 14.45% over the same period.
About the Author: Shweta Kumari
Shweta’s deep interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help individual investors make educated investment decisions. Read more…
